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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER D. KARUNAKARA RAO, AM
There are three appeals filed by the Revenue under consideration against the separate orders of CIT(A)-3, Pune, commonly dated 04-07-2016 for the A.Yrs. 2011-12 to 2013-14. Revenue raised the grounds with similar issues in all these 3 appeals and therefore, the said issues are being adjudicated in this composite order.
We shall take up the facts, figures and issues/grounds pertaining to A.Y. 2011-12 for reference. Grounds raised by the Revenue for A.Y. 2011-12 are extracted here as under : “1. On the facts and circumstances of the case, the Ld. CIT(A) erred in not appreciating that the clauses of development agreement entered into by assessee with the developer M/s Amar Builder clearly show that the
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intention of the assessee was to commercially exploit the land, hence the consideration received by the assessee over and above the consideration offered as sale consideration in AY. 2007-08 should have been held as business income of the assessee for AY. 2012-13. 2. On the facts and circumstances of the case, the Ld. CIT(A) erred in not appreciating that there is no violation of principle of consistency as no capital gain respect of such land was offered to tax by the assessee in AY. 2009-10 and 2010-11. 3. The appellant prays that order of the CIT(A) be held to be bad in law and quashed and also restore back the order of the AO. 4. The appellant prays to be allowed to add, amend, modify, rectify, delete or raise any grounds of appeal during the course of appellate proceedings.
Briefly stated relevant facts from the file for A.Y. 2011-12 are that the
assessee is an HUF and filed the return of income on 28-09-2011 declaring
total income of Rs.10,80,61,837/-. During the assessment proceedings, AO
noticed that an amount of Rs.13,13,61,700/- was claimed as capital gains
for this year. In response to the queries from the AO, assessee dutifully filed
the necessary details and facts relating to the said claim of capital gains.
Accordingly, the facts include that the assessee owns a land at Sopan Baug,
Pune and the same was to be developed vide development agreement dated
05-09-2005 in association with M/s. Amar Buildings. According to the
income sharing scheme, assessee gets 30% of the gross sales in respect of
the units where sq.ft. rate of constructed area sold does not exceed 1800
sq.ft. In respect of sq.ft.of constructed area exceeds Rs.1800/sq.ft., assessee
will get share of sales @35%. Further, as per the Development Agreement
deed, the whole of the project shall be completed within 3 years from the
date of said development agreement dt.05-09-2005, i.e. in the year 2008.
The assessee has right to specific performance in case of failure of the
Builder to complete the project in time. The payment also shall be paid
within three years. However, assessee starting receiving the payment from
the A.Y. 2007-08 onwards to A.Y. 2010-1. The said amount was reflected by
the assessee in the return of income as capital gains in that A.Y. 2007-08. It
3 ITA Nos.2423 to 2425/PUN/2016 Shri Dilip Narayan Borawake
is undisputed fact that out of Rs.1800 per sq.ft. assessee’s share @ 30%
comes to Rs.540 per sq.ft. and multiplying the same to the entire saleable
area the total sale consideration of assessee’s share comes to
Rs.13,13,61,798/-. However, AO of that year taxed the same under the head
“business income” and held the whole arrangement constitutes an adventure
in the nature of trade. CIT(A) granted relief in that year. The Revenue
accepted the decision of CIT(A) and there is no appeal before the ITAT by the
Department. Therefore, as per the taxation of the capital gains, for the A.Y.
2007-08 is concerned, it is a finalized issue and the said amount received
from M/s. Amar Builders is taxable under the head “capital gains”. Further,
this issue of proper ‘head of income’ is not relevant for subsequent
assessment years, i.e. 2008-09 to 2010-11 as assessee did not receive any
income out of the said transaction.
In the year under consideration, i.e. A.Y. 2011-12, the assessee
received a sum of Rs.6,91,38,302/- (Pages 43 to 46 of the paper book).
However, the AO dealt with this issue in Para No.3 of the order and taxed the
same as “business income”. For the sake of completeness, the said para is
extracted as under :
“3………………. It shows clear intention of the assessee to control the sale of the constructed area and share the accelerated profit of the business and it is therefore the assessee has made the arrangement by sharing the sales of the constructed units. This arrangement is nothing but the adventure in the nature of trade but generated income to be shown as capital gain to reduce the tax liability. Hence the proceeds of sale of land is treated as business income and not as capital gains.” (Emphasis supplied)
The allegation of intention of assessee to control the sale of the constructed
area is the solitary reason for altering the head of income from capital gains
to profit and gains from business and profession.
4 ITA Nos.2423 to 2425/PUN/2016 Shri Dilip Narayan Borawake
Aggrieved with the same, assessee filed an appeal before the CIT(A). It
is the case of the assessee that the assessee being the owner of the land, the
gains derived from the said arrangement, constitutes capital gains only.
Assessee contended that the AO’s finding that the assessee intends to
control the sale of constructed area and the arrangement was nothing but
adventure in the nature of trade is not correct and sustainable as the same
is the activity of the Developer. The CIT(A) dealt with the submissions of the
assessee and also relied on the finding of his predecessor for the A.Y. 2007-
08, extracted the relevant portion of the said order of the CIT(A) in Para
No.4.1 to 4.9 and decided the issue in favour of the assessee as per the
contents of Para No.4.1 of his order. The said operational para is extracted
here as under :
“4.1 In view of the above facts, the issue at hand for the year under consideration being similar, the decision for A.Y. 2070-08 (supra) is followed and grounds No.2 and 3 are allowed.”
Aggrieved with the said finding of the CIT(A) in favour of the assessee,
the Revenue is in appeal with the grounds extracted above.
Referring to Ground No.2 of the appeal of the Revenue, Ld. DR for the
Revenue submitted that, by an arrangement of income sharing @30% of
gross sales in cases of units @ Rs. 1800/- per sq.ft and income sharing
@35% of the gross sales in cases exceeding Rs.1800/- per sq.ft., there is a
mechanism of control of sales by the assessee through the said Development
Agreement (supra). Therefore, it is not a plain case of sale of land to earn
capital gains for taxation under the head “capital gains” and it has much
more than the mere sale transaction. Referring to the principle of
consistency, Ld. DR fairly submitted that the issue of taxation of similar
income under the head “capital gains” for the A.Y. 2007-08 has attained
5 ITA Nos.2423 to 2425/PUN/2016 Shri Dilip Narayan Borawake
finality as the Revenue accepted the finding of the CIT(A). Further, Ld. DR
for the Revenue submitted that this issue is not there for the A.Yrs. 2007-08
to 2010-11 and the income returned under the head “capital gains” stand
accepted by the Revenue for all these assessment years.
Per Contra, Ld. Counsel for the assessee submitted that so far as the
assessee is concerned, the land ownership is transferred against a
consideration and the same is the realization of sale proceeds of the land
realized by way of the said income sharing mechanism. Therefore, there is
no control of business operation by the assessee relating to the
determination of sale price of sq.ft. of saleable area and marketing of the
same to the to the customers, i.e. the flat buyers. In effect, for assessee, it is
the case of sale of land and the realization of sale proceeds are done through
the arrangement mentioned above. Relying on the finding of CIT(A) starting
from the A.Y. 2007-08 onwards, Ld. Counsel for the assessee submitted that
it is a case of settled issue for taxing the income under the head “capital
gains” only. Further, Ld. Counsel submitted the following written
submission in this regard. For the sake of completeness, the said
submissions are extracted here as under :
“1. These are the three appeals of the dept. for A.Ys. 2011 - 12 to 2013 - 14. The assessee owned land at Sopan Baug, Pune. This land was held by the assessee since 1954. For more than 50 years, the assessee cultivated the land. Thereafter, the assessee entered into an agreement with M/s. Amar Builders as per which the assessee transferred the entire development rights in the said land to M/s. Amar Builders. As per the agreement, M/s. Amar Builders agreed to pay 30% of the gross sale proceeds on sale of flats / units to the assessee. It was further agreed that M/s. Amar Builders will pay 30% of the sale proceeds where the rate of sale of unit is upto Rs.1800/- per sq.ft. It was also agreed that in case, the selling rate exceeded Rs.1800/- per sq.ft., the assessee would receive additional 5% of the selling rate in excess of Rs.1800/-. The copy of the development agreement is given on pages 1 - 38 of the Paper Book. 2. The assessee has offered capital gain over the years on sale of the said land. In A.Y. 2007 - 08, the assessee worked out capital gain by considering 30% of Rs.1800/- which works out to Rs.540/- per sq.ft. This rate was considered for the entire saleable area and accordingly, the total sale
6 ITA Nos.2423 to 2425/PUN/2016 Shri Dilip Narayan Borawake
consideration was worked out at Rs.13,13,61,698/- for A.Y. 2007 - 08 and the same was duly offered to tax as long term" capital gain by the assessee. 3. Since the assessee had already considered the initial sale consideration at Rs.13,13,61,700/- in A.Y. 2007 - 08, the amounts received till the cumulative total reached Rs.13,13,61,700/- were considered as offered to tax in A.Y. 2007 - 08. Thus, no capital gains in respect of this land were offered to tax in A. Y s. 2008 - 09 to 2010 - 11. Thereafter, the assessee adopted a system of offering the actual amount received in each year as long term capital gain in that year. The year wise details of amounts received from Amar Builders is as under
Sr Financial Assessment Amount Cumulative No Year Year Received Amount In which Taxed 1 2006-07 2007-08 4,00,00,000/- 4,00,00,000/-
2 2007-08 2007-08 1,00,00,000/- 5,00,00,000/-
3 2008-09 2007-08 2,35,00,000/- 7,35,00,000/-
4 2009-10 2007-08 4,45,00,000/- 11,80,00,000/-
5 2010-11 2007-08 1,33,61,700/- 13,13,61,700/-
6 2010-11 2011-12 6,91,38,300/- 20,05,00,000/-
7 2011-12 2012-13 6,50,00,000/- 26,55,00,000/-
8 2012-13 2013-14 8,55,00,000/- 35,10,00,000/-
Accordingly, in this manner, the assessee has worked out capital gain over the years. The learned A.O. has not accepted the claim of the assessee and has held that the entire consideration received by the assessee is taxable as business income. Accordingly, he taxed the entire amount offered by the assessee as long term capital gain in A.Y. 2007 - 08 as business income and further, for the subsequent years i.e. A.Ys. 2011 - 12 to 2013 - 14, the A.O. has taxed the long term capital gain as business income.
The assessee challenged the addition before the learned CIT(A) for all the years. For A.Y. 2007 - 08, the learned CIT(A) has held that the amount received on sale of the land is taxable as long term capital gain and not as business income and accordingly, reversed the order of the learned A.O. The learned CIT(A) has noted- that the assessee owned the land for more than 50 years and has been reflected as a capital asset. Further, the learned CIT(A) has also noted that the assessee is not a builder/developer. It is also held by the CIT(A) that as per the agreement entered into with M/s. Amar Builders, the assessee has transferred the development rights in the said land and has not entered into any partnership or joint venture with M/s. Amar Builders. After considering the decision of Hon'ble Supreme Court in the case of Venkataswami Naidu & Co. v. CIT [35 ITR 594], the learned CIT has held that the gain is taxable as long term capital gain. The copy of the order of CIT(A) for A.Y. 2007 - 08 is enclosed on pages 76 - 88 of the Paper Book.
7 ITA Nos.2423 to 2425/PUN/2016 Shri Dilip Narayan Borawake
For A.Ys. 2011 - 12 to 2013 - 14, the learned CIT(A) has again allowed the claim of the assessee and has held that the gain on sale of land is taxable as long term capital gain. Basically, the learned CIT(A) has followed the order passed for A.Y. 2007 - 08. Now, the dept. has filed an appeal against the orders of the CIT(A) for A.Ys. 2011 - 12 to 2013 - 14. However, for the main year i.e. A.Y. 2007 - 08, the order of the CIT(A) has been accepted and no appeal has been filed by the dept. for the said year. This fact is also accepted by the learned D.R. in the course of hearing. In these circumstances, when the dept. has accepted the order for A.Y. 2007 -08, there is no reason to dispute the same for the subsequent years. For this proposition, the assessee places reliance on the decision of Hon'ble Supreme Court in the case of Radhosoami Satsang [193 ITR 321]. Accordingly, it is submitted that since the claim of the assessee has been accepted for A. Y. 2007 - 08, there is no reason to treat the capital gain offered in the subsequent years as business income.”
From the above written submissions of the assessee, it is evident that
assessee offered Rs.13,13,61,798/- for the A.Y. 2007-08 though the same
was received in parts over the assessment years 2007-08 to 2010-11 (Sl.No.1
to 5 of the table of the written note). The said amount now stands decided
taxable under the head “capital gains”. Therefore, Ld. Counsel relied on
settled principle of consistency as discussed in Para No.5 of the note above
and submitted for confirming the order of the CIT(A).
PRINCIPLE OF CONSISTENCY : Further, Ld. Counsel for the
assessee, submitted that the source of gains and taxability of the same
under the proper head of income is same litigious issue. Further, he
submitted that the same is decided by the CIT(A) for the A.Y. 2007-08 in
favour of assessee and dismissing the order of the AO. AO attempted to treat
the same as taxable under the head “business income”. The sum of
Rs.6,91,38,300/- has the same source in the transaction of transfer of land
to M/s. Amar Builders through the Development Agreement (supra).
Therefore, considering the commonality of the facts on the source of income,
the amount should be taxable under the same head, i.e. “capital gains”. Ld.
Counsel relies on the Supreme Court in the case of Rashosoami Satsang
(supra) and submitted that when the Department accepted the order of
8 ITA Nos.2423 to 2425/PUN/2016 Shri Dilip Narayan Borawake
CIT(A) for the A.Y. 2007-08, there is no reason to dispute the same for the
subsequent years, i.e. A.Yrs. 2011-12 to 2013-14. On this ground of
principle of consistency also, Ld. Counsel for the assessee submits for
dismissing the appeals of the Revenue for all the 3 years.
Further, before us, Ld. Counsel for the assessee filed the computation
of income for all the assessment years starting from A.Y. 2007-08 to 2012-13
and the finding of CIT(A) for the A.Y. 2007-08 in support of the contention
that the amount was taxed under the head “capital gains”.
DECISION OF THE TRIBUNAL
We heard both the parties on this limited issue, i.e. taxing of the sale
proceeds of the land under the proper head of income, i.e., “capital gains” in
this case. AO is of the view, the correct head of income is “business income”.
We have also perused the orders of the Revenue and the order of CIT(A) for
the A.Y. 2007-08 and the paper book filed before us as well as the written
submissions filed before us. On perusal of the above as well as the material
available on record, it is evident that the income streams are one and the
same from the A.Y. 2007-08 onwards. Both the sums of Rs.13.13 crores &
Rs.6.91 crores has the origin in the Development Agreement with the M/s.
Amar Builders. It is a settled issue and the gain of RS.13.13 crores is
subjected to tax under the head “capital gains” finally for the A.Y. 2007-08
and disturbing the same by the AO, when the facts are identical, violates the
set principles of consistency. In this regard, we perused the judgment of
Hon’ble Supreme Court in the case of CIT Vs. Gopal Purohit reported in 336 ITR 287 and the legal proposition laid down by the Apex Court reads as
under :
9 ITA Nos.2423 to 2425/PUN/2016 Shri Dilip Narayan Borawake
Question formulated :
(b) Whether, on the facts and circumstances of the case and in law, the Hon’ble ITAT was justified in holding that principle of consistency must be applied here as authorities did not treat the assessee as a share trader in preceding year, inspite of existence of similar transaction, which cannot in any way operate as res judicata to preclude the authorities from holding such transactions as business activities in current year?
The Hon’ble High Court answered the above question as under :
In so far as Question (b) is concerned, the Tribunal has observed in Paragraph 8.1 of the judgment that the assessee has followed a consistent practice in regard to the nature of the activities, the manner of keeping records and the presentation of shares as investment at the end of the year, in all the years. The revenue submitted that a different view should be taken for the year under consideration, since the principle of res judicata is not applicable to assessment proceedings. The Tribunal correctly accepted the position, that the principle of res judicata is not attracted since each assessment year is separate in itself. The Tribunal held that there ought to be uniformity in treatment and consistency when the facts and circumstances are identical, particularly in the case of the assessee. This approach of the Tribunal cannot be faulted. The revenue did not furnish any justification for adopting a divergent approach for the Assessment Year in question. Question (b), therefore, does not also raise any substantial question.”
Further, we also perused another judgment in the case of Radhosoami
Satsang (supra) and find, in principle, the principle of consistency is
affirmed. Considering the above, we are of the opinion that without going
into the merits of the case on this principle of consistency issue alone, the
assessee is entitled to relief. Therefore, in our opinion, the order of CIT(A) is
fair and reasonable and does not call for any interference. Accordingly, the
ground No.2 raised by the Revenue are dismissed and in favour of the
assessee.
Consequently, the grounds raised by the Revenue on merits have also
to be dismissed as adjudication of the same becomes an academic exercise.
As such, the grounds on merits are dismissed as academic.
In the result, the appeal of the Revenue is dismissed.
10 ITA Nos.2423 to 2425/PUN/2016 Shri Dilip Narayan Borawake
ITA Nos. 2424 and 2425/PUN/2016 A.Yrs. 2012-13 & 2013-14
These two appeals are also filed by the Revenue with similar issues. The facts, grounds/issues, decision of AO/CIT(A), arguments of the parties are same as that of appeal for A.Y. 2011-12. Therefore, our decision given in appeal ITA No.2423/PUN/2016, holding that the assessee is entitled to relief technically, apply to these appeals too. Accordingly, the grounds raised by the Revenue in both the appeals are dismissed.
In the result, the appeal of the Revenue is dismissed.
To sum up, all the three appeals of the Revenue are dismissed. Order pronounced on 01st day of August, 2018. Sd/- Sd/-
(िवकास अव थी /VIKAS AWASTHY) (डी. क�णाकरा राव/D. KARUNAKARA RAO) �ाियक सद�/JUDICIAL MEMBER लेखा सद�/ACCOUNTANT MEMBER पुणे / Pune; िदनांक / Dated : 01st August, 2018. Satish
आदेश की 'ितिलिप अ)ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��थ� / The Respondent. 2. 3. The CIT(Appeals)-2, Pune 4. The Pr. CIT-2, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “बी” ब"च, 5. पुणे / DR, ITAT, “B” Bench, Pune. गाड% फ़ाइल / Guard File. 6.
आदेशानुसार / BY ORDER,
// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune